MannKind Rents Out a Drug Program

MannKind (NAS: MNKD) announced today that it licensed its preclinical BTK (Bruton's tyrosine kinase) program to Tolero Pharmaceuticals but included a take-back option in the deal. MannKind has until 60 days after the conclusion of the first phase 1 trial to invoke the option, which would have MannKind paying Tolero unspecified milestones, royalties, and sublicensing fees.

XOMA (NAS: XOMA) did something similar in its deal with Laboratoires Servier, where it retained the right to buy back the U.S. and Japan rights to XOMA 052 in diabetes and cardiovascular indications. It seems some small biotechs want to have their cake and eat it, too.

The payment for the first half of the deal -- the compounds going to Tolero -- was specified, but it's not very useful to MannKind's investors. The biotech is due $130 million for upfront and milestone payments linked to development, approval, and commercialization of the drugs in the program, but there were no details about how that might break down.

It's pretty standard for biotechs to not lay out exactly when they'll get milestone payments. About all you can hope for is that the company will separate development and regulatory milestones from sales milestones that are years away and harder to obtain. Endocyte (NAS: ECYT) combined them in its recent licensing deal with Merck (NYS: MRK) . Exelixis (NAS: EXEL) separated them out in its deal with Merck but didn't bother to disclose the amount of the milestones tied to sales. No reason to tip off the competition, I guess.

But biotechs usually break out how much they're getting upfront; Endocyte and Exelixis both did. And that would seem to be doubly important for a company that had just $3.2 million in cash and equivalents at the end of the year. MannKind raised about $80 million in February, so it's not in dire straits, but cash is still a big part of the story here. In the fourth quarter, MannKind burned through $20 million, and that'll increase as it completes enrollment in the additional trials the FDA wants before approving its inhaled insulin treatment Afrezza.

My guess is the upfront payment is fairly small, which is why MannKind didn't bother disclosing it. Still, superficially the deal looks like a good move to get the program off the expense sheet -- perhaps temporarily -- while it focuses on Afrezza, which has the biggest near-term potential. It just would be nice to have a bit more information to evaluate the deal.